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Does profit sharing increase employee satisfaction with the boss?

Author:
Colin Green, Lancaster University, and John Heywood. Colin Green is an economics lecturer at Lancaster University. His research interests include performance-related compensation, job satisfaction and the effects of flexible employment contracts.John Heywood is a professor of economics at the University of Wisconsin at Milwaukee. His research interests include performance-related compensation, the study of unions and location theory.

Date: 8 August 2011

Type of case study: Research

About the research

Profit sharing has been identified with positive outcomes such as increased organisational productivity, innovation and profits, reduced worker turnover and increased worker training. Those who favour profit sharing claim it improves the workplace by increasing co-operation between co-workers and superiors as well as generating positive peer pressure and mutual monitoring.

This study evaluated these claims by examining how profit sharing arrangements influence the relationship between workers and supervisors. Specifically, the aim was to evaluate the effect of profit sharing arrangements on the quality of relations between workers and supervisors, using workers' reported satisfaction with their supervisor as a proxy. From data in the BHPS, the researchers generated a panel dataset of employed individuals where the primary interest was in regressing satisfaction with the boss on profit sharing arrangements.

In contrast with the positive findings of previous research, this study showed that workers under profit sharing agreements tend to have lower satisfaction with their supervisor. This result was largely driven by women, who may be less able to respond to peer pressure, and for non-union workers, who may have more to lose by failing to respond to peer pressure.

These results suggest that introducing group payment schemes into the workplace may harm workforce cohesion and co-operation and result in increased pressure on employees. In particular, group payment schemes in non-unionised and/or feminised workplaces have the potential to increase conflict not only between workers and supervisors but also between co-workers.

About the data

The British Household Panel Survey (BHPS) has been conducted annually since 1991 on a nationally representative sample of more than 5,000 households. Every adult 16 years or older within the sampled household is interviewed.

This study used the 1991-1997 waves of the BHPS as the key variable of interest, satisfaction with the supervisor, was asked only in this period.

Methodology

In addition to the 'satisfaction with the boss' variable, a range of other control variables such as gender and union membership were taken from the individual response files. From this a panel dataset of employed individuals was generated, where the primary interest was in regressing satisfaction with the boss on profit sharing arrangements. The analytical methods used were ordered probit regressions and individual fixed effects variants of these models that aim to control for non-random sorting of individuals into profit sharing arrangements.